Pigs, Panic, Politicians and The Wolfpack

Perhaps the folks running the big container shipping lines are genuinely concerned about the environment and their carbon footprint. Maybe they have simply seen what they think is a chance to save a few bucks by wrapping themselves in a green cloak. Regardless of their motives, however, they are trashing their customers, fattening up supply chains, and probably not saving any money although their stone age accounting systems lead them to think they are.

Their big idea is a really dumb idea called 'slow steaming'. The theory is that by slowing down the ships they can save fuel, which saves money. Lean and green it is not Slow ships = longer voyages = longer lead times = more inventory in the supply chain. Fat and a slightly greener tint of brown is a better description. But they measure themselves on stuff like ship utilization, and by slowing down the boats they deliberately under utilize them – so it takes more of them to haul the freight. And most of their customers are tunnel visioned on labor cost so getting stuff from China strikes them as a good deal and an increase of their main asset – inventory – is not a big problem.

If it is saving any money they shippers are hogging all of it for themselves. Container freight prices are way up– mostly due to a shortage of ships because they mothballed a lot of the fleet. Says Jean Louis Cambon, the freight boss at Michelin, "This has to be one of the few sectors of industry that believes it can reduce service quality while simultaneously increasing prices."

Slowing the ships saves over 560 metric tons of fuel on the voyage from Hong Kong to LA. But slowing the ships down still uses over 1,000 metric tons of fuel on the voyage from Hong Kong to LA. I would think that if anyone in the equation actually cared about the environment – or about really making money in the long haul – they would quit using 1,000 tons of fuel to haul thing from the ecological wasteland of China all together - instead of simply perfuming the pig and taking a few tons of fuel out of the equation.

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Speaking of China, a few weeks back I predicted the end of the grand Wall Street-Academia-Fortune 500 love affair. Not really a prediction so much as stating the inevitable. It is about as uncertain as looking at ten dominoes perfectly aligned and 'predicting' that the last one will fall after someone has knocked over the first one. In an update to that prognostication … "HON Hai, the electronics maker plagued by worker suicides this year, will discuss price hikes with clients such Apple and Nokia …In a separate development overnight, workers at a southern China factory owned by Japanese firm Omron went on strike and demanded higher salaries … Wage increases at Chinese factories of Hon Hai and other firms have helped fuel speculation that companies could increasingly shift their manufacturing operations from China to other countries." You can read all about it in The Australian.

PANIC

The economists and the boys on Wall Street are having a conniption fit over the seeming inevitability of deflation. Funny thing, deflation. Not everyone thinks it is so bad. If you have cash in the bank and little or no debt, the notion of falling prices sounds pretty good. Lean companies and increasingly the American consumer fit that description as savings rates are rising rapidly. Big borrowers, however, like companies financing long Chinese supply chains bloated with inventory, and outfits like the Federal government, are panicked at the prospect. This guy writing for the Kansas City Star pretty well spells out the point of view of those who think the solution to avoiding financial problems is to spend more money you don't have. In a country full of people increasingly upset about the massive government debt, however, the Obama administration is having a tough time convincing people that another trillion dollar stimulus package is needed to avoid having consumer prices drop.

Lean companies are cash driven and will thrive in a deflationary economy. The dinosaurs who still genuflect before the old DuPont ROI model and its core principle that inventory and cash are one and the same are finding themselves further and further up the creek without a paddle and their future is grim.

Akers is a company founder and president who is steeped in lean thinking, with the remarkable idea that government spending can be greatly reduced without a reduction in services. "Our government is out of control. Their answer to everything is spending more money. The answer to a lean thinker is less money, taking money away and using your head, instead of your wallet. As a lean thinker, we say money suffocates creativity. We don't have leaders who think this way." The voters in washington will be shooting all of us in the foot if they don't send a guy who thinks like that to D.C. instead of Patty "Never-saw-a-spending-bill-she-didn't-like" Murray.

THE WOLFPACK

Last, a nod to the folks from North Carolina State who are leading into National Manufacturing Week in a big way with their Manufacturing Makes it Real Tour. They tell me even Tarheels and Blue Devils are welcome on the bus. It's going to be a great week in North Carolina.

Comments

Funny how short-sighted we’ve been, not wanting to think about the inevitable time when foreign workers are no longer satisfied with low wages, long hours, and poor working conditions. It makes it even more important that we maintain strong domestic manufacturing capability.

Thanks for the shoutout about the MMIR tour. Hope your planning for National Manufacturing Week is going well!

Had some fun with the math of “slow steaming” using the story. By my estimates slow steaming saves about $5 million in fuel but costs the freight company 3.22 round trips per year. At 8,000 containers capacity this equals about $130 lost revenue per year per ship. From the customers perspective the additional interest costs on the freight are at least $12 million per year per ship. So to save $5 million in fuel slow steaming costs at least $130 million lost revenue and $12 million additional costs to their customers. Bankruptcy is too good for them!